August 2011

A short history of the market access rule

9 August 2011
Just a few days ago, on July 14th, SEC Rule 15c3-5, the market access rule, became effective. Fortunately, the days since have resulted in little fanfare and few problems. As was widely anticipated, certain aspects of the rule were delayed. Specifically, the SEC agreed to phase in all aspects of the rule as they apply to fixed income securities and, perhaps more wide-reaching, postponed the implementation of controls to ensure orders sent through brokers’ systems do not exceed pre-set credit or capital thresholds. Broker-dealers will still have to determine appropriate credit thresholds for all counterparties for which they provide market access (and for themselves), though they will now have several more months to do so. Given the number of customers they may have and the limited guidance to date regarding the factors to consider when establishing these thresholds, it is perhaps no surprise that a delay was granted.

Where is the FX market headed and what are the near term consequences?

9 August 2011
Most people in the FX industry could probably feel the changes, slowly coming from somewhere hidden. It sometimes feels like a secret group somewhere is pulling the strings. Who ever came up with FIFO? Most of these regulatory changes are done in the name of “protecting the investor” but really, any trading in such a system where FIFO applies, just makes it more difficult to make profits. It doesn't really reduce risk, does it? And the leverage? What will be the future leverage on average? 100:1 on some places or far less? As on some brokers we now see a 50:1 on majors and 20:1 on exotics, Why? Sure, risks can be different, but also volatility and a multitude of other factors are in play. Is it paranoia which brings about questions like: – Is this only limiting the possibilities to profit?

The Saxo touch

9 August 2011
FX-MM talks to Saxo Bank CEO, Torben Kaaber, about his new role in Saxo Bank and the plans for the near future. Since inception in 1992, Saxo Bank has gone from strength to strength displaying vast amounts of foresight and staggering performance over the years. The company’s net profit trebled from 2009 to 2010 and this year looks to be another of strong performance in spite of the tough market conditions for the bank. Talking to Torben Kaarber, CEO at Saxo Bank UK , it is easy to understand how Saxo Bank has avoided the pitfalls that other banks have witnessed and how it has sustained its performance and continued to grow substantially in both the institutional and retail trading markets. Torben Kaarber has been with Saxo Bank since 1994 when the bank grew from just ten employees to 70. Today, it is now fast approaching 1,000. After a short spell heading an electrical trading company, he re-joined Saxo Bank in 2004 as the Global Head of Institutional Business overseeing the bank’s offices around the world.

Living on the edge

9 August 2011
Dean Peters-Wright looks at the events taken place in the last few weeks within the USA, China and Europe and provides an analysis and what impact this is likely to have on business. July set the stage for global economics to come to a pivot point resulting in a possible incremental step forward for both Europe and the US to follow. Both regions will put in place mechanisms that will lead towards recovery and it is hoped with an element that has been missing: significant growth. It can be seen that these steps are actually more likely to be a temporary band aid and the issues will have to be dealt with again further down the line. The concern is a world wide financial implosion; however this is unlikely, although the US is cutting it very close to the deadline of 2nd August.

Forex on the move

9 August 2011
Across all the sectors in the FX market, growing volumes and customers are driving the need for greater automation. In this special supplement FX-MM examines the continued move to mobile FX trading and looks ahead as the 'tablet PC' era arrives. By Frances Maguire. The growing popularity of FX mobile trading and research applications is rapidly providing banks and service providers a new delivery channel, both as a way of attracting a new customer base and as a value-add to existing customers. This is being driven by the ubiquity of the mobile phone, and new ways to integrate Apple devices with desktop and trading turrets, but now increasingly, the larger and more effective iPad is growing in popularity. Early adopters of the iPad include BNP Paribas Securities, Royal Bank of Scotland, Credit Suisse and most recently, JP Morgan, as powerful value-add to their e-commerce platforms.

Building bonds with RMB trade and investment

9 August 2011
Standard Bank is helping corporate clients in China and Africa to reduce costs and increase growth with RMB trade settlement and a growing suite of RMB services and solutions. With the Chinese authorities clearly working to develop the renminbi as a currency of global trade, Standard Bank is helping both Chinese exporters and African importers to take advantage of that and lower their cost of doing business. As the importance of the renminbi grows, Standard Bank is growing it product and service offerings alongside – providing new solutions to best enable trade and investment growth between Africa and Asia. Parikshat Tulsidas, General Manager, Global Markets Advisory, Standard Advisory (China), says: "We identified that the renminbi had been deregulated to some extent last year." The bank had already targeted China – Africa as a growth segment. The region now boasts trade flows of around $130 billion, and Standard Bank expects that to grow to more than $300 billion by the end of 2015. "We felt there would be great demand for this currency going forward for trade settlement – and beyond that for investment purposes."

The internationalisation of the renminbi

9 August 2011
China's focus on developing the renminbi as a central currency of world trade and investment is picking up steam. The importance of the renminbi is clearly growing, and banks and investors are looking to hop on board. China is going full steam ahead with plans to further the development of the renminbi as an international currency for both trade and investment, with the offshore Hong Kong market as a hub. Authorities have long expressed a desire to see the renminbi on an even footing with the US dollar as an international reserve currency. Of course, there are some challenges that must be overcome before that could be a reality - not least the need for the RMB to become a fully-convertible currency. Nonetheless, although it may be some time before the RMB is fully open from an investment perspective, it continues to grow as a currency of international trade, and the offshore RMB market in Hong Kong is growing as a hub for both trade and investment.

Putting FX on display

9 August 2011
Bilaterally traded foreign exchange deals are much less transparent than equities. However, as Frances Maguire finds, even ahead of incoming regulation, much is being done to improve transparency. Due to the bilateral nature of FX trading, pre and post-trade transparency can be hard to come by, compared to other instruments such as exchange-traded derivatives and equities. For equities, in the US, there are now stringent requirements to give customers best execution by displaying five other quotes to show that the best price at the time of purchase was chosen. With the regulatory spotlight now on making over-the-counter (OTC) products more transparent through mandatory trade reporting requirements and the introduction of central trading through swap execution facilities, the lack of transparency in the equally opaque spot FX market is also being questioned.

SEPA time for action

9 August 2011
With the end dates for legacy payment systems due to be finalised this autumn, corporate migration to SEPA is poised to become a regulatory necessity rather than a ‘nice to have’. This article explores the challenges corporates face when adopting SEPA and asks how banks and other partners can help. The announcement on 17th December 2010 that an end date was to be set for legacy payment systems might not have had the finality that many in the industry were hoping for – but it brought the SEPA initiative one step closer to widespread adoption and some corporates, at least, have been prompted to move to SEPA as a result. “The end date still needs to be finalised, but the fact that it has been announced certainly creates awareness in the market,” comments Ad van der Poel, Head of Payments and Receivables for EMEA, Bank of America Merrill Lynch. “Every day we are seeing more attention from corporates.”

Overcoming the SEPA challenge

9 August 2011
As compliance with the single euro payments area (SEPA) looms closer, banks must reconsider their payments strategy if they are to maintain profitability in this new environment. Michael Burkie, Market Development Manager for BNY Mellon Treasury Services EMEA, discusses how a “collaborative ecosystem” approach to financial institution partnership can help banks overcome the challenges SEPA presents. Progress towards SEPA has been painfully slow. An initiative developed by the European financial legislators, SEPA aims to end the current fees-based distinction between domestic and cross-border payments by treating all electronic intra-European euro payments as domestic payments. It had been hoped that a combination of market forces and the perceived benefits of the initiative would be enough to provoke a “natural” migration to the adoption of SEPA-compliant payment instruments, but this was not to be.

Banking on better SME cash management

9 August 2011
Banks need to start buying or building better cash management and e-banking systems for their SME customers, or risk alienating an increasingly-important, and increasingly-vocal – market segment. Although there are a number of solutions out there for SME cash management and ebanking, they are not readily available from many companies' banking partners, as the specific needs of this segment are often ignored when it comes time for bank resource allocation. Typically, banks will either lump SMEs in with their larger corporate clients or assume their needs can be met by consumer solutions. However, neither end of the spectrum fully addresses the needs of the SME. And as a result, many smaller firms must deal with either functionality and solutions that are too complex – and way beyond the scope of what they need or can afford – or too simple.

Central and Eastern Europe

9 August 2011
In the late 1980s and early 1990s, the then Soviet Union lost its hold on the traditional ideas of a socialistic single party government that focused its economy around a centrally planned financial system. The Central and Eastern European countries eventually broke off from communism and embarked on a long winded transition to a market orientated economy. Although welcomed greatly by those that wished for free market pricing and enhanced competition and efficiency, the transition was not without growing pains. It was not simply that the people of Central and Eastern Europe had to get used to a new way of doing business; the entire structure of each state had to transform. Laws governing the economies in some cases had to be changed or entirely re-written. Institutions that were used to reporting into a central hierarchy of bureaucrats found that they had to manage themselves and the entire ownership structure of businesses, capital and assets that for so long had been under state ownership (resulting in impeded progress as a consequence) had to be reformed as managers and workers now found themselves to be stakeholders.

60 Second interview

9 August 2011
FX-MM quizzes CLS Group’s Director of communications, Jonathan Butterfield, for his view of the biggest challenges facing the foreign exchange industry, the importance of settlement, the need for a ‘neutral voice’, and what he does when he is not working. Which piece of market regulation do you feel is the most challenging right now and why? We have pieces of the jigsaw, notably in the US plus several announcements in Asia. At time of writing European regulations are still undecided though drafts provide good directional intelligence. In FX, the main challenges will come from the introduction of trade repositories and mandated clearing for certain products. Multiple venues for both represent significant workflow changes for many participants, not just banks. The global nature of the FX market necessitates close coordination within the community.